NEW YORK – Three companies bid a record-shattering $405 million to nab United States rights to build offshore wind farms near Massachusetts on Friday, a testament to the surging appeal of renewable power and investors’ growing confidence in demand for it.
Equinor Wind US LLC, Mayflower Wind Energy LLC and Vineyard Wind LLC each pledged $135 million to secure individual leases from the U.S. government, drawn by state commitments to buy offshore wind power.
The auction raked in more than nine times the previous high-water mark: a 2016 sale of an offshore wind lease near New York for $42.47 million. Each of the winning bids also approached the highest sum paid for oil drilling rights in the Gulf of Mexico since the start of area-wide leasing in 1983: $157 million that Equinor ASA spent nabbing a single 5,760-acre tract in 2012.
This time, the companies were jockeying over three wind leases spanning nearly 390,000 acres (157,800 hectares) south of the resort islands of Martha’s Vineyard and Nantucket. The location gives wind developers a chance to serve power-hungry cities along the U.S. East Coast and help satisfy state pledges to buy renewable energy.
“These $100 million-plus bids reflect the strength of state commitments to offshore wind,” Cheryl Wilson, an analyst at Bloomberg Intelligence. “They’re creating momentum for an offshore industry in the Northeast.”
Revenue from the wind auction flows to U.S. government coffers. There are parallels to offshore oil leasing, with energy companies bidding on drilling rights and paying royalties on eventual crude and natural gas production. But the wind leases sold Friday are at least 22 times the size of a typical U.S. offshore oil block, at 128,811, 127,388 and 132,370 acres.
The sale spanned two days and unfolded over 32 rounds, with companies submitting anonymous electronic bids that grew rapidly from $254,776. Eleven companies were actively bidding at the beginning of the auction on Thursday morning, nearly twice the most-recent record for participation, in 2016, when six developers jockeyed for the New York offering. But by Friday morning, just four remained.
Some 19 companies had gotten pre-qualified to participate in the auction, more than in any of the previous seven competitive sales of wind leases in U.S. waters. The prospective bidders included units of established offshore wind developers and renewable power companies that have primarily focused on land as well as oil companies such as Equinor and Royal Dutch Shell PLC. Mayflower is an affiliate of Shell.
The frenzy reflects growing interest in U.S. offshore wind since 2016, when the nation’s first such facility, a 30-megawatt facility development near Block Island, Rhode Island, went online.
“The intense competition we’ve seen in this offshore wind lease auction is completely unprecedented,” said Nancy Sopko, director of offshore wind policy at the American Wind Energy Association. “Global businesses now recognize the potential of America’s world-class offshore wind resources.”
Playing catch-up
Although the U.S. is a relative latecomer, it’s making up for lost time. Wind developers are being lured to American waters by near-guaranteed demand, as coastal states ratchet up commitments to buy renewable electricity. For instance, in August, Massachusetts enacted a target for buying 1,600 megawatts of offshore wind.
“Looking up and down the East Coast – and specifically in the Northeast – we see states with huge commitments to buying this power,” Sopko said. “That is driving incredible demand for this energy.”
Declining installation costs and uncertainty about the timing of the next U.S. sale of an offshore wind lease helped feed interest. Analysts also describe growing investor confidence in the stability and predictability of the market, as President Donald Trump continues making territory available for new projects. The U.S. has held eight auctions of federal offshore wind rights since the Obama administration started competitive lease sales in 2013, including two under Trump.
Rising Demand
U.S. offshore wind power is expected to surge over the next decade – reaching 10,000 megawatts by 2030, compared to just 30 megawatts installed in the water today, according to Bloomberg New Energy Finance.
“Just three years ago, these lease areas had no bidders at all,” noted Liz Burdock, president of the Business Network for Offshore Wind. “This strong interest from the offshore wind marketplace demonstrates the economic potential of the offshore wind industry.”
Companies are paying ever higher sums for the offshore development rights. Five years ago, Deepwater Wind’s $3.8 million bid was enough to win two tracts of a combined 165,000 acres for the Block Island project.
The size of the winning bids in the Massachusetts auction reflect the transition to a more established market, said Tom Harries, an offshore wind analyst with Bloomberg NEF.
“Five years ago, you’d acquire a lease, and it would be more speculative – you were speculating there would be a market at some point. And that’s why there were fewer bidders and the prices were cheap,” Harries said. “Now that there is a route to market for your project and somebody who is incentivized to buy your power, then prices will be higher and competition will be higher.”
To keep momentum, industry experts say the Trump administration will need to schedule more offshore wind sales, beyond an auction of territory near New York slated for early 2020.
“Maintaining this tremendous level of interest from offshore wind developers requires a reliable inventory of regularly scheduled offshore wind sales and the ability to develop those resources,” said Randall Luthi, head of the National Ocean Industries Association, which has pushed the government to conduct at least four sales annually. “The unprecedented interest in today’s sale suggests that goal could easily be met and even surpassed,” Luthi said.
Companies with U.S. government qualification to participate in Thursday’s auction include Avangrid Renewables LLC, which won the rights to build an offshore wind farm near North Carolina last year, EDF Renewables Development Inc., Cobra Industrial Services Inc., EDPR Offshore North America LLC, EC&R Development LLC, Enbridge Holdings Green Energy LLC, Equinor Wind US LLC, Mayflower Wind Energy LLC and Vineyard Wind LLC.
Jennifer A. Dlouhy is a reporter for Bloomberg News.
